FBR Proposes Fresh Capital Value Tax on Cars

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Last week, we informed you that the Federal Board of Revenue (FBR) had proposed increasing the Federal Excise Duty (FED) on both locally assembled and imported motor vehicles. The institution wants to introduce the hike by promulgating the Tax Laws Amendment Ordinance to generate additional revenue in the upcoming “mini-budget.”

The latest media reports suggest that FBR has proposed another car tax to collect revenue. According to these reports, the government wants to impose a fresh Capital Value Tax (CVT) on imported and locally-assembled cars. Through this new taxation, the government wants to collect revenue of Rs. 10 billion to meet the International Monetary Fund’s (IMF) demands. It is pertinent to mention that the IMF delegation is currently in Pakistan for negotiation to release the next installment for the country. 

CVT on Cars 

If we discuss the CVT, the government imposed it on imported and locally-assembled cars in three steps. In Finance, Bill 2022 document revealed a new tax on cars. According to the paper, the government imposed 2% CVT on vehicles with a price over Rs. 5 million (50 lacs). However, after a month, FBR reduced the tax to 1% on cars above Rs. 5 million. 

FBR also disclosed the procedure for the evaluation of vehicles. Vehicles manufactured within Pakistan were valued at the value determined by the manufacturer. For imported cars, the value was determined by Customs authorities and includes the customs charges.

If a vehicle is auctioned, the auction price is considered the value of the car. In any other case, the total consideration paid to acquire, alter or improve the vehicle was regarded as the final value of the vehicle. The depreciation of vehicles was also accounted for by the Finance Bill 2022. It required that the value of the motor vehicle mentioned shall be reduced by 10% for each year from the end of the financial year in which the motor vehicle is obtained.

For imported vehicles, the tax was collected by the Customs authorities at the time of import. In the case of locally manufactured cars, the local manufacturer or assembler shall collect tax from the buyer of the motor vehicle on sale value at the rate specified in the First Schedule.

Change in CVT on cars 

However, there was another change in the implication process of CVT on cars. From July 2022, CVT was imposed on: 

  • Cars with an engine size above 1300cc
  • Electric vehicles with battery power above 50kwh

The government finished the condition of Rs. 5 million but included more cars in the tax net. There are no reports on what percentage of CVT will be imposed or on which segment of cars will be affected, but there are solid chances that it will be increased. 

 

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